Taxes Are Already Scheduled To Rise

by Mario Rizzo

President Obama and his various spokespeople are saying incessantly that deficit reduction as a requirement (thanks to the Republicans) to raise the debt limit must be done in a “balanced” manner. There must be some kind of revenue increases to go along with the spending-growth reductions. There are many ways to talk about “balance.” In this case, however, they are all normative. If you think that taxes are already too high, then higher taxes add to the existing imbalance.

Nevertheless, in all of the discussion, few seem to be reminding us that there are already tax increases built into the current system largely to support the so-called entitlement programs. An exception to this neglect is an article by Janice Revell, “The Rising Impact of Stealth Taxes,” in the July 25, 2011 issue of Fortune.

  1. As a result of the healthcare reform bill, the Medicare tax will rise in 2013 on income over $200,000 for individuals and $250,000 for couples from the employee rate of 1.45% to 2.35%. (Employers also pay 1.45% so the total will now be 3.8%). This will not be indexed for inflation.
  2. In 2013 there will be a new Medicare tax of 3.8% on investment income for those whose wages plus investment income exceeds the above thresholds. This will also not be indexed for inflation.
  3. Then there is the un-indexed tax on Social Security benefits. In 1984 (when the tax was passed) the tax applied to 10% of retirees. Today the tax applies to one-third of retirees and, if nothing changes in the law, it will apply to nearly half in a decade.

These facts suggest a number of things. One is that taxes are already going up for “millionaires and billionaires” (as the talking points have it) and for a “few” others as well. Second, tax increases have a way of trickling down the income ladder especially when un-indexed.

I am not claiming here that these are big tax increases. Clearly, they are not big enough for Obama or even to be mentioned in most of the press. But they are worth mentioning.

8 thoughts on “Taxes Are Already Scheduled To Rise

  1. And, of course, there is Milton Friedman’s point that government spending is the true measure of the burden on the private economy. The amount measures the resources appropriated for state use.

  2. It is typical that once a tax increase is accepted, it is taken for granted. There appears to be a presumption that the deficit so obviously justifies tax increases that people should not complain. This comes down to saying, we’ve spent it so you had better pay more.

  3. There was a decent article in Monday’s NYT on the debate. It actually made the point that the empirical evidence supports spending cuts over tax increases.

  4. Mario, these scheduled increases are already factored into the government budget/ deficit projections. As far as the Federal government is concerned, they are foregone conclusion, representing money already in the bag, as it were. What Obama and his allies want is more taxes.

    Still, you are making a valuable observation that these taxes are not indexed, promising to follow the path of the Alternative Minimum Tax, to the chagrin of all those who favored, or passive acquiesced to, the popular slogan of “tax the rich”, or “tax the richest 2%”. If inflation picks up in the future, many more will protest, in vein.

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